With each New Year, comes the promise of renewal. But for some, the changing calendar can bring anxiety. Especially when it comes to finances. And if you’re getting all worried about mortgage rates after seeing frequent increases the last 18 months, you really shouldn’t fret, and here’s why.
We’ve been spoiled as borrowers for years. Interest rates have been at generational lows for some time. It’s given many of us the opportunity to get into the housing market and find our dream homes. But what goes down must always come up? Maybe that’s not completely correct, but it was only a matter of time before rates climbed back to a more traditional area. As we left 2018, the Bank of Canada rate was 1 3/4 per cent. The reality is, if the economists have it right, rates are going to continue to rise for the next 12 to 24 months. The best fixed-rate mortgage could be at six per cent when all is said and done.
So rather than be scared, be educated.
Fixed rates are typically tied to the world economy where the variable rate is linked to the Canadian economy. When the economy is stable, variable rates will remain low to stimulate buying.
Adding to the rise in rates are the government stress test rules. In the fall of 2017, OSFI, (the Office of Superintendent of Financial Institutions) the agency that regulates the financial industry, announced tighter rules on mortgages. The biggest change related to uninsured mortgages, or homebuyers with 20 per cent or more for a down payment. These people are now required to go through a “stress test” or qualify using a minimum qualifying rate.
The changes came a year after a similar stress test was introduced for insured mortgages.
It will be up to the federal government if the rise in rates will make them reconsider the stress tests in place. But unless something changes, rates are going to rise. It’s important to keep in mind, a quarter point increase in the BOC rate equates to $13 on every $100,000 of mortgage. It’s not insignificant, especially if you’re carrying a million dollar mortgage, but it’s also very survivable.
In fact, the rates are the only thing we have no control over. There are some things you can do to take the power back. If you’re carrying some hefty credit and consumer debt, a refinance is something to consider. Yes, refinancing your mortgage mid-cycle might mean you lose that ultra-low rate you got a couple years ago, but getting rid of your high-interest debt could save you thousands a year. It may also be the time to have a conversation with your mortgage broker about a transfer. If you got a mortgage prior to 2016, making a switch and resetting your amortization at the rates now may be better than waiting a couple years when your mortgage is up for renewal.
Don’t get hung up on what the rates are doing and where they’re at. There’s lots of things to consider, but fear isn’t one of them.